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Citi Upgrades Kotak Mahindra Bank

July 26, 2007

Citigroup Research has upgraded the price target of Kotak Mahindra Bank to Rs 825 but a bit too late. Kotak has swiftly moved up from Rs 640 to Rs 730 on expectations of better results.

Kotak which is also into Retail Stock Trading business had made all its clients BUY their company Futures ahead of the results. This is a matter of great concern and SEBI should investigate this matter ?

Coming back to Citi’s analysis, 40% yoy profit growth, but 7% below their estimate. KTKM’s loan book is up 56% yoy (4% qoq) and remains diversified across consumer loan segments, with almost no asset stress. Margins remain 5%+ in the face of funding challenges, though broking volumes are only flat.

Target price of Rs825 is based on EVA methodology. KTKM’s relatively high share of securities fees suggests a valuation benchmark of an investment bank. Kotak is expected to report an EPS of Rs 19.92 for FY2008 and Rs 25.46 for FY2009.

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